When Patients Get Edged Out by Profits

February 17, 2022

Patients, alongside their health care providers, should decide which medication is right for them. Yet, with increasing frequency, that decision is being overruled by “the middleman.”

Known as pharmacy benefit managers, these intermediaries are hired by insurance companies to manage their prescription drug program. But rather than facilitating treatment access, they often impede it.  

An Ugly Choice

Pharmacy benefit managers develop lists of covered medications, called formularies. When a patient’s prescribed drug isn’t on the formulary, they face an ugly choice. They can accept a substitute that is covered by the health plan, or they can pay out of pocket to get the medication their doctor actually prescribed.

In the case of stable patients, being forced off the drug their doctor prescribed is called “non-medical switching.” Such switches interfere with the doctor-patient relationship and cause patients medical issues and unnecessary stress.

Cashing In On Rebates

Pharmacy benefit managers’ tactics have been blamed for driving up drugs’ prices while simultaneously increasing companies’ bottom lines.

They confidentially negotiate discounts and rebates with drug manufacturers, then stack their formularies with the most profitable drugs and drive patients toward them. It’s a money-chasing game that has led to an increase in drug rebates’ use and value in recent years. Now, some rebates are 50% or more of a drug’s list price.

The problem is that middlemen pocket the rebates. Meanwhile, patients get stuck paying more because their out-of-pocket cost is based on the drug’s list price – not the rebate price.

To make matters worse for patients, some manufacturers feel pressure to increase their drugs’ list prices to help offset the rebates they must offer for their medications to get covered by health plans. This is one reason why list prices for branded drugs have increased in recent years.

Ripe for Reform

At the federal level, several groups are eyeing reform.

  • The Centers for Medicare and Medicaid Services is considering ways to rein in fees charged by pharmacy benefit managers that participate in Medicare. The agency is accepting comments on the proposal, which is also expected to lower out-of-pocket costs for some Medicare patients, through March 7.
  • The Federal Trade Commission votes on February 17 whether to take a closer look at how the industry’s practices impact pharmacy operations. Pharmacies, especially small, independent and specialty pharmacies, have been complaining for years about inflated and retroactive fees, among other concerns.
  • Some policymakers on Capitol Hill have floated the idea of eliminating the use of rebates. Requiring companies to pass along rebates’ savings to patients has also been mentioned.

Given how pharmacy benefit managers have entwined themselves in the process, it may take policy change at several levels to reduce their influence and restore decision-making power to patients and providers.

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